In an act of desperation, Metro Vancouver’s development community has embarked on a letter-writing campaign calling on the regional government to reconsider major fee hikes on new residential development.
The builders say that increased government fees for new home infrastructure, amid a bleak housing market, are in many cases making the delivery of new housing impossible. The growing pains of a record-setting federal immigration policy calling for around half-a-million new permanent residents over a three-year period, are being felt by the region’s developers and municipal governments. Who’s going to pay for the growth, they ask?
More than 15 developers, including several major industry players, fired off letters to Metro Vancouver chair Mike Hurley and the board members. They also cc’d federal and provincial government officials. Their chief request is to present their case as a delegation at a Sept. 27 Metro Vancouver board meeting.
Last week they met with Mr. Hurley, and according to Wesgroup president Beau Jarvis, Mr. Hurley proposed that they form a task force made up of developers and Metro Vancouver staff. They will also be allowed to speak Oct. 7 at a finance committee meeting, according to Mr. Jarvis.
It’s already been well publicized that dozens of projects have gone into foreclosure or stalled, and developers with big enough pockets are not moving forward with their projects.
Housing starts have fallen by 20 per cent year-over-year so far this year, Wesgroup’s letter said. Anthem Properties said 14,600 units in Vancouver proper have been approved but have failed to start construction. In Surrey, there are 34,000 units approved but not built. Edgar and Intracorp cited a 29-per-cent drop below the average of the past decade for presales. Intracorp president Evan Allegretto implored the Metro Vancouver board to reconsider its decision to hike fees.
“The housing supply crisis in Metro Vancouver is no longer the primary issue,” developer Zenterra’s letter said, referring to the non-building that is going on.
Bucci Developments included a breakdown of a quantity surveyor report that showed the cost to build a six-storey, 69-unit building near Commercial and Broadway, which worked out to be more than $1-million per unit – and that was before the increase in Metro Vancouver fees.
Metro Vancouver’s proposed fee increases by 2027 include $24,106 more for single-family houses and $14,657 more for each apartment unit in Vancouver, including park acquisitions, for example. Fees vary based on type of housing unit and area. Costs are phased in over three years. The idea is that “growth pays for growth,” instead of transferring the cost to residents. Each municipality also charges development fees, on top of the Metro Vancouver fees.
The call for an additional 3.5 million units of housing to be built by 2030 comes with a cost. A report released in July by the Canadian Urban Institute and funded by the Canada Infrastructure Bank said the average cost of infrastructure per home in fast-growing areas of Canada is more than $100,000. Those funds will go toward transit, roads, sewers, schools, parks, water and other necessities – costs that exceed municipal budgets.
“We need to provide investment in critical infrastructure across the province, whether it be schools, water, sewer, parks, etcetera. We’re definitely not arguing against that,” Polygon Homes executive vice-president Robert Bruno said in an interview. “We’re just arguing about what is the right distribution. And frankly, should it all be borne by the Metro Vancouver taxpayers? Or should we be looking at assistance from the province and the federal government that will allow us to stretch this out? You’re asking a homebuyer today to pay the capital cost for something that has an amortization of 50 to 100 years, right?
“In all fairness to municipal government and to the Metro Vancouver board, they’re faced with a challenge,” he added, “because no one can argue that we don’t need this infrastructure to accommodate the growth that we’ve experienced to date, as well as the expected growth. And they have literally no control over immigration policies.”
Mr. Hurley said in a statement: “Unfortunately, senior government funding for infrastructure hasn’t been nearly enough to support affordability for residents. Without increasing [development cost charges], households would need to pay for the vast majority of the cost of new infrastructure through their utility bills.”
Mr. Hurley said it’s “fair” that developers include such costs in their plans, and Metro Vancouver would regularly review the economic impact of the DCCs.
Wesgroup and others are calling for a two-year pause on the new fees to allow them to complete the projects they already have under way. They also asked for the fees on future projects to be paid at the end of the project, instead of the beginning, when startup costs are huge. They asked for analysis on the proposed fee increases, and a more equitable distribution of costs between new homebuyers and taxpayers.
This isn’t a case of developer greed, Mr. Jarvis said, although he’s aware that the public might interpret it that way.
“It’s an untenable operating environment,” he said in an interview. “Our industry is broken.”
“Municipalities are doing what they can – they’ve just gone too far. I think that we need to engage in a more honest conversation about how this is unfolding, because we’re now saying: The party’s over, right? We’re sort of dead in the water here. Contrary to popular belief, building housing is extremely risky. And the margins have been diminishing for quite a long time … they’re diminishing to the extent that it’s no longer commensurate with the risk that we take. And I think that’s a problem. And so, this concept of the greedy developer or whatever, it couldn’t be further from the truth.”
Wesgroup is currently developing its 130 acre master-planned River District, on the banks of the Fraser River. “The increases resulting from the Metro Vancouver DCCs are nearing $70-million,” Mr. Jarvis said. “These are fees that were never contemplated for the project.”
The reality, the builders say, is that fee increases will ultimately get passed on to the consumer.
The CUI report acknowledged that growth could stall when the burden of prepaying for the full cost of infrastructure is shouldered by developers. It had several recommendations on ways to share the burden between public and private sectors. Mary Rowe, president and chief executive officer of the CUI, said that municipalities can’t run deficits and so they are constrained as to how much they can borrow. They’re in a bind.
“What the Infrastructure Bank is saying is that we need to find ways to equip municipalities to borrow more money, finance differently, work with partners differently, maybe work with private equity or private capital, and institutional investors differently,” Ms. Rowe said.
